The Ubiquitous Dollar, Part 3: Fight Dollarization, Protect the Dong!

Economist Nguyen Dai Lai urges drastic measures to fight what he believes to be the germ of high inflation.

Lai is the Deputy Director of the State Bank’s Banking Strategy Department.  He told Tien Phong reporters that Vietnam ought to follow very strict administrative measures to fight inflation.  He suggests formation of a national foreign currency reserve fund to hold foreign currency income.< />

 

Tien Phong: In most countries, using foreign currencies to settle accounts is considered a violation of the law. In Vietnam we have such laws too, but  in reality, foreign currencies are used everywhere. What would you say about that?

 

Dr. Nguyen Dai Lai: An independent finance and monetary system is one which is not affected by any foreign currency. This means that all the foreign currencies when must be converted into the local currency when they enter the country.

 

In countries like Thailand, Singapore and Indonesia, though foreign currencies come into the countries though different channels, citizens of the countries still must use the local currency when they buy things. Vietnamese laws have similar provisions. It’s due to the low consciousness of Vietnamese people that the use of the dollar in daily life is still popular.

 

When an economy is dollarized, the dollar dominates the local currency. If the economy cannot be independent, it will be hurt and then inflation will occur.

 

Tien phong: Do you agree that one of the most important reasons behind the dollarization is that most Vietnamese hoard dollars? They seem to fear the dong will lose its value.

 

Lai: In Vietnam for quite some time, the Government and the State Bank have attached much importance to the fight against the dollarization. However, I have to admit that many things are still beyond our reach.

 

For example, we don’t know how many dollars there are in the market, how much inflow and outflow or what amount of dollars are being kept under people’s mattresses.  Not all people deposit the dollars they have in banks.

 

Tien phong: What should we do to fight dollarization?

 

Lai: Two measures are always used when dealing with a tendency toward dollarization.  The first is strict management of the dong/dollar exchange rate and the second is establishment of a so-called national foreign currency reserve fund, which the central bank can use to intervene in the market.

 

We need to more strictly follow our administrative measures to compel the use of the dong within our nation for transactions.  Especially, we need to strive to have a single exchange rate.  We must not allow the existence of the black market.

 

Regarding credit, we should prohibit mobilizing capital denominated in foreign currencies except when we issue bonds.  Especially, we should strive not to provide loans denominated in foreign currencies. Commercial banks can provide vault services, so that people who have dollars and assets (diamond, gold and silver) can deposit them in the bank’s vaults.

 

The Government should assign the State Bank and other agencies, including the Ministry of Public Security, to get involved in the fight against dollarizarion.

 

We should learn from other countries’ experience.  Those organs that have sources of revenue in foreign currencies (such as the Ministry of Industry and Trade, Ministry of Finance, Ministry of Labour, War Invalids and Social Affairs) should be required to put all that foreign currency under the management of the central bank, which will form up a national foreign currency reserve fund.

We need also stipulate that all enterprises which have income in foreign currencies must sell the foreign currencies to commercial banks in exchange for dong.

VietNamNet/TP

 

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